CAFC Affirms Frozen Dairy Product Not Classifiable as Article of Milk
In Arko Foods International, Inc., v. U.S., the Court of Appeals for the Federal Circuit upheld a 2009 Court of International Trade judgment that although mellorine is a dairy product, it is not an article of milk as milk doesn't provide its essential character. Instead, the frozen dairy product it is classifiable as other edible ice.
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(Mellorine is a frozen dessert similar to ice cream, but with vegetable or animal fat substituted for at least some of the butterfat. Arko Foods International, Inc. imports six flavors of mellorine relevant to this case: purple yam, fruit salad, mango, macapuno (a type of coconut), durian (a fruit), and Quezo Royale (a cheese and coconut flavor also known as Quezo Real).)
CBP Liquidated Mellorine as Article of Milk, Denied Arko's Protests
U.S. Customs and Border Protection liquidated Arko’s mellorine under subheading 2105.00.40, which applies to dairy products (as described in Additional U.S. Note 1 to Chapter 4) for amounts above a certain tariff rate quota. CBP determined that mellorine was classifiable under this subheading because it is an article of milk as described in Additional Note 11. After CBP denied Arko's protests, Arko filed suit in the CIT.
CIT Found Milk Was Not Essential Ingredient, Classified Mellorine as Edible Ice
In the CIT, Arko argued that mellorine is a composite good that, under Rule 3(b)2 of the General Rules of Interpretation (GRIs), is prima facie classifiable under heading 0811 (fruits and nuts) or 2106 (food preparations not elsewhere specified). Arko argued that mellorine was not classifiable under 2105.00.40 as an article of milk because milk was not the essential ingredient.
Ultimately, the CIT agreed determined that mellorine was only classifiable under 2105.00.50 as edible ice because milk was not the essential ingredient as mellorine also requires animal or vegetable fat and sweetener. CBP appealed.
CBP Said Mellorine was an Article of Milk Based on Industry Views
On appeal, CBP did not dispute that heading 2105, which encompasses ice cream and other edible ice, was the correct heading. CBP argued that mellorine was an article of milk because the industry classified it as a dairy product. Additionally, CBP asserted that the CIT erred by classifying Arko’s mellorine under 2105.00.50 as other edible ice instead of subheading 2105.00.40 because mellorine is a dairy product described as an article of milk in Additional Note 1.
CAFC Said an Article of Milk Must Have the Essential Character of Milk
The CAFC concluded that the language of the heading, subheading, and Explanatory Notes does not indicate what is required for something to be considered an article of milk. Therefore, the CAFC concluded that the appropriate definition for an article of milk is a mixture with the "essential character" of milk.
CAFC Affirmed CIT, Found Mellorine Doesn't Have Essential Character of Milk
The CAFC stated that the question in this case is not whether mellorine is a dairy product, but whether Arko's mellorine is a dairy product that is described in Additional Note 1 -- specifically whether it is an article of milk.
The CAFC noted that Food and Drug Administration regulations state that mellorine is characterized by the addition of flavoring ingredients. Additionally, the parties did not dispute that, even ignoring water, milk powder was not the most preponderant ingredient by weight in any of the flavors at issue: there were more sugar, oil, and/or flavoring ingredients in each flavor. It was also undisputed that, in all flavors except Quezo Royale, milk powder is not the costliest ingredient. In light of these undisputed facts, the CAFC concluded that the mellorine does not have the essential character of an article of milk.
Accordingly, the CAFC affirmed the CIT's judgment that the mellorine is properly classified under subheading 2501.00.50 as other edible ice.
1This note describes three categories of dairy products: (i) malted milk and articles of milk or cream (except white chocolate and certain inedible dried milk powders); (ii) articles containing 5.5% by weight of butterfat; or (iii) dried milk, whey or buttermilk… which contains not over 5.5% by weight of butterfat and which is mixed with other ingredients and contains over 16% milk solids).
2GRI 3(b) states that when goods are prima facie classifiable under two or more headings, composite goods consisting of different materials or made up of different components, etc. shall be classified as if they consisted of the material or component which gives them their essential character. GRI 1 states that classification shall be determined according to the terms of the headings and any relative section or chapter notes.
(Appeal # 2010-1211, dated 08/11/11)
CIT ruling is available here.
CAFC ruling is available here.